Hearing such stories, struggling dairy farmers in northern NSW squeezed by the big supermarkets saw an opportunity and decided to find another buyer.

China, which last year overtook the United States as the world’s largest importer of food, seemed like a logical new market. After some rudimentary research, the numbers appeared to add up. Industry group Dairy Connect estimated they could fly milk into Shanghai, Beijing or Hong Kong for around $2.50 a litre, even after paying a significant premium to producers. That left a healthy margin for the distributor and retailer.

Corporate landscape littered with corpses

But doing business in China is never that simple. The corporate landscape is littered with corpses of those who came seeking riches only to suffer heavy losses. As a rule, to crack the Chinese market you need deep pockets and patience. Setting up is expensive, competition is intense and the bureaucracy can be stifling. Ernst & Young estimates it takes most large firms up to five years just to break even.

The horror stories are well documented and Dairy Connect farmers’ branch president Adrian Drury is realistic about the dairy venture’s chances. He estimates it will take a full 12 months to facilitate entry to the market. They are now working with the NSW trade office to get quarantine and customs clearance and establish local partners.

“Because it’s a perishable product, we need to get the supply chain exactly right," says Drury. “We can’t have milk sitting on the tarmac in 35 degree heat for obvious reasons."

Still, it’s a good idea. And there are plenty of them when it comes to China. A recent McKinsey report estimates that by 2020, some 850 million people will be living in urban areas, up from about 650 million in 2010. Over that time, average annual per capita disposable income will double to $US8000.

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While China’s economy has slowed this year, it is still expected to grow at an annual pace of more than 7 per cent and that’s after tripling in size over the 10 years to 2010.

Benefits flow for Australian businesses

Austrade’s head of international relations, Laurie Smith, says sectors already benefiting from China’s rising consumer include food and wine, education and tourism. Australia’s professional services firms, including architects, designers, human relations consultants, project managers and advertising firms, are also carving out a niche.

Australian wine producers have been in China for the past 20 years, being among the first to see the potential growth in the market. Only the French sell more wine in China. Still, rivals are catching up fast, and some countries like Chile have a competitive edge from a free-trade agreement with Beijing.

While Australian wine sales grew by 37 per cent last year, this was well below the growth of major rivals. French wine imports to China grew by 74 per cent last year, from a very high base, while Spanish, South African and Portuguese wine sales rose about 100 per cent.

Still, well-established Australian producers like De Bortoli’s are growing strongly. Export director Victor De Bortoli says the company’s sales in China doubled last financial year and it plans to hire a full-time country representative, probably based in Hong Kong.

Back in Australia, hotels, casinos and restaurants are all benefiting from the growing number of Chinese tourists, who tend to stay longer and spend more than other international visitors. In 2010, they contributed $3.2 billion to the Australian economy, which the government hopes will grow to between $7 billion and $9 billion by 2020. That’s why Tourism Australia launched its global campaign in Shanghai this year and doubled its marketing budget for China.

As commodity prices soften, China’s rapidly growing healthcare market has emerged as a new opportunity for Australian firms. China is set to become the world’s second-largest healthcare market by 2020, as it triples annual expenditure to more than $US1 trillion. The surge in spending is driven by the ageing population, growing middle class and the central government’s desire to close the healthcare gap.

“The government is trying to promote social harmony, and closing the gap on healthcare is a big part of this," says Franck Le Deu, a McKinsey partner based in Shanghai. “This is a market that is still extremely early in the stage of development."

The government is also trying to encourage higher domestic consumption by providing more state-subsidised healthcare. This has thrown up opportunities for everyone from nursing home providers to vitamin suppliers.

At the same time, China’s move to open up its capital markets and ease foreign exchange controls will pave the way for Australia’s financial services providers to play a bigger role.

Markets still tough to crack

However, Austrade’s Smith says many an entrepreneur with a dream of cracking the Chinese market has been disappointed.

“The macro story in China is exciting," he says. “But we shouldn’t be blind to the challenges of execution."

Smith says Japan and China present a “striking contrast". In Japan, it’s difficult for a business to make the right connections to set up a venture. However, once those painful and lengthy negotiations are worked through, it often results in a profitable transaction and a long-lasting business relationship.

In China, Smith says, it’s very easy initially to make connections and start talking about business plans. However, it’s less likely those negotiations will end in a profitable and sustainable long-term business relationship.

“It’s a turbulent market," says Smith. “To ride it and continue to grow is a real challenge."

Sometimes it may be the partner doesn’t need you any more. Other times, third parties get involved. “There are lots of players who want to see local champions prosper so that’s something that is a bit of a headwind" for foreign companies, Smith says.

Then there is the intense competition. De Bortoli says his biggest concern now is “the rush of wine into the country from various parts of the world".

“We know our wines are pushing through but we have heard about some inventory piling up," he says.

Even global leaders have found that China presents unique challenges. eBay discovered this when it was muscled out of the local online auction market by its more nimble Chinese competitor, Alibaba. For Google, it was a case of being shut out by the central government after refusing to allow its site to be censored. That has allowed Baidu to prosper.

And technology giant Apple has a big fight on its hands in China, where South Korean rival Samsung is the market leader in the smart phone market while local upstart Xiaomi is also gaining prominence. In 2010, Apple forecast it would have 25 stores in China by this year. But so far, it has just six – two in Beijing, three in Shanghai and one in Hong Kong. Profits or demand are not the problem for Apple– China accounts for a fifth of total revenue – so analysts believe red tape may be holding the company back.

New models needed

Smith says the aged-care sector is a good example of the complexities of doing business in China. There is no doubt about a business case for more facilities. The country’s aging population and lack of an adequate pension scheme or comprehensive healthcare system means there are huge gaps in the market when it comes to looking after the elderly.

However, it’s not as if you can just adopt the model used in Australia and relocate it to China. There is a complex regulatory system, as well as language and cultural obstacles to navigate. “You have to invent it all over again in China," says Smith. “Rather than just parachute something in."

It takes time and resources to develop a local footprint. But the numbers are compelling. Consumption now makes up just 40 per cent of China’s economic output, compared with 70 per cent in developed countries like Australia. And it is growing at an annual pace of about 8 per cent. “Many Australian companies are poised to benefit from China’s expanding consumer firepower," says Kate Howitt, portfolio manager of the Fidelity Australian Opportunities Fund.

Howitt says the ASX will never be treated as a proxy for the rise of the Chinese consumer, like it was for the country’s industrialisation. “Investors instead can expect a China-sourced earnings boost from Australian stocks smart enough to gain from China’s economic maturing."